- Sales Increased $20 Million, Up 5%
- GAAP Diluted EPS $0.57; Adjusted Diluted EPS $0.59, Up 16%
ATLANTA, Oct. 24 /PRNewswire-FirstCall/ -- Carter's, Inc. (NYSE: CRI), the largest branded marketer in the United States of apparel exclusively for babies and young children, reported its third quarter results for fiscal 2006.
On July 14, 2005, Carter's, Inc. (the "Company") acquired all of the outstanding common stock of OshKosh B'Gosh, Inc. (the "Acquisition") and refinanced its existing debt (the "Refinancing"), which included its former senior credit facility and the repurchase of all of its 10.875% Senior Subordinated Notes due 2011 (the "Notes"). Results for the three and nine- month periods ended September 30, 2006 include OshKosh for the entire period, while results for the comparable periods in fiscal 2005 include OshKosh from July 14, 2005 through October 1, 2005.
Third Quarter 2006 compared to Third Quarter 2005
Net sales increased 5.3% to $392.0 million. Excluding OshKosh sales of $88.5 million in 2006 and $96.1 million in 2005, net sales increased 9.9% to $303.5 million.
The Company's wholesale sales increased 3.7% to $169.4 million. Excluding OshKosh wholesale sales of $25.8 million in 2006 and $32.6 million in 2005 and Carter's off-price sales of $9.0 million in 2006 and $6.9 million in 2005, Carter's wholesale sales increased 8.7% to $134.6 million.
The Company's mass channel sales, which are comprised of sales of its Child of Mine brand to Wal-Mart and Just One Year brand to Target, increased 15.2% to $66.3 million.
Retail store sales increased 3.4% to $156.2 million. Excluding OshKosh retail store sales of $62.7 million in 2006 and $63.5 million in 2005, Carter's retail store sales increased 6.6% to $93.5 million. This increase was driven by sales from new Carter's stores opened since the third quarter of fiscal 2005 and a comparable store sales increase of 1.7%.
In the third quarter of fiscal 2006, the Company opened five Carter's stores and four OshKosh stores. The Company also closed one OshKosh store. As of September 30, 2006, the Company had 205 Carter's stores and 146 OshKosh stores.
In the third quarter of fiscal 2006, net income increased $24.4 million to $35.0 million, or $0.57 per diluted share, including non-cash charges of $0.01 per diluted share of intangible amortization resulting from the Acquisition and $0.01 per diluted share related to stock-based compensation resulting from the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). Net income of $10.6 million, or $0.17 per diluted share, for the third quarter of fiscal 2005 included charges of $19.1 million, or $0.32 per diluted share, associated with the Acquisition and Refinancing, and $1.3 million, or $0.02 per diluted share, of costs associated with the closure of two sewing facilities in Mexico. Excluding these charges in each period, adjusted net income increased 17.1% to $36.3 million. Diluted earnings per share, excluding these charges in each period, increased 15.7% to $0.59 per diluted share. The reconciliation of income, as reported under generally accepted accounting principles ("GAAP"), to income adjusted for these charges is shown below.
(dollars in millions, except EPS)
Three-month period ended September 30, 2006
Income
Before Net Diluted
Taxes Income EPS
Income, as reported (GAAP) $55.0 $35.0 $0.57
Intangible amortization (a) 1.2 0.7 0.01
Stock option expense (b) 0.9 0.6 0.01
Income, as adjusted (c) $57.1 $36.3 $0.59
(dollars in millions, except EPS)
Three-month period ended October 1, 2005
Income
Before Net Diluted
Taxes Income EPS
Income, as reported (GAAP) $17.5 $10.6 $0.17
Refinancing:
Tender premium (d) 14.0 8.5 0.14
Debt issuance costs (e) 5.6 3.4 0.06
Unamortized discount (f) 0.5 0.3 0.01
20.1 12.2 0.21
Acquisition charges:
Inventory step-up (g) 10.4 6.3 0.10
Intangible amortization (a) 1.0 0.6 0.01
11.4 6.9 0.11
Facility closings:
Plant closure costs (h) 2.1 1.3 0.02
33.6 20.4 0.34
Income, as adjusted (c) $51.1 $31.0 $0.51
(a) Amortization of OshKosh intangible assets, primarily licensing
agreements.
(b) Stock-based compensation charges related to the adoption of SFAS 123R.
(c) In addition to the results provided in this earnings release in
accordance with GAAP, the Company has provided adjusted, non-GAAP
financial measurements that present income before taxes, net income,
and net income on a diluted share basis excluding the adjustments
discussed above. We believe these adjustments provide a more
meaningful comparison of the Company's results. These adjusted, non-
GAAP financial measurements included in this earnings release should
not be considered as an alternative to net income or as any other
measurement of performance derived in accordance with GAAP. The
adjusted, non-GAAP financial information is presented for
informational purposes only and is not necessarily indicative of the
Company's future condition or results of operations.
(d) Tender premium to repurchase the Notes.
(e) Non-cash charge to write off debt issuance costs associated with the
Refinancing.
(f) Non-cash charge related to the write-off of the unamortized discount
on the Notes.
(g) Fair value step-up of inventory acquired from OshKosh included in cost
of goods sold.
(h) Costs associated with the closure of two sewing facilities in Mexico,
including accelerated depreciation charges of $0.6 million, pre-tax,
included in cost of goods sold.
"We are very pleased with the strong performance of our wholesale and mass channel segments which continue to offset lower than expected results from Carter's and OshKosh's retail stores" noted Fred Rowan, Chairman and CEO. "We are committed to improving our retail store performance, building Carter's and OshKosh's brand equity, and elevating product design under each brand's umbrella. We are encouraged by the response from our customers to our spring and summer 2007 products, which reflect the benefit from investments we have made in talent and branding this past year."
First nine months of fiscal 2006 compared to first nine months of fiscal 2005
Net sales increased 25.3% to $966.0 million. Excluding OshKosh sales of $230.6 million in 2006 and $96.1 million in 2005, net sales increased 9.0% to $735.4 million.
The Company's wholesale sales increased 16.2% to $405.0 million. Excluding OshKosh wholesale sales of $74.9 million in 2006 and $32.6 million in 2005 and Carter's off-price sales of $22.8 million in 2006 and $25.5 million in 2005, Carter's wholesale sales increased 5.8% to $307.3 million.
The Company's mass channel sales increased 25.9% to $171.3 million.
Retail store sales increased 36.1% to $389.7 million. Excluding OshKosh retail store sales of $155.8 million in 2006 and $63.5 million in 2005, Carter's retail store sales increased 4.9% to $234.0 million. This increase was driven by sales from new Carter's stores opened since the third quarter of fiscal 2005 and a comparable store sales increase of 0.6%.
In the first nine months of fiscal 2006, the Company opened 16 Carter's stores and six OshKosh stores. The Company also closed four Carter's stores and two OshKosh stores. In fiscal 2006, the Company plans to open 30 Carter's and 15 OshKosh stores and plans to close eight Carter's and three OshKosh stores.
In the first nine months of fiscal 2006, net income increased $29.9 million to $59.8 million, or $0.98 per diluted share, including non-cash charges of $0.03 per diluted share of intangible amortization resulting from the Acquisition and $0.03 per diluted share related to stock-based compensation resulting from the adoption of SFAS 123R. Net income of $29.9 million, or $0.49 per diluted share, for the first nine months of fiscal 2005 included charges of $19.1 million, or $0.31 per diluted share, associated with the Acquisition and Refinancing, and $4.6 million, or $0.08 per diluted share, of costs associated with the closure of two sewing facilities in Mexico. Excluding these charges in each period, adjusted net income increased 19.0% to $63.8 million. Diluted earnings per share, excluding these charges in each period, increased 18.2% to $1.04 per diluted share. The reconciliation of income, as reported under GAAP, to income adjusted for these charges is shown below.
(dollars in millions, except EPS)
Nine-month period ended September 30, 2006
Income
Before Net Diluted
Taxes Income EPS
Income, as reported (GAAP) $94.8 $59.8 $0.98
Intangible amortization (a) 3.6 2.2 0.03
Stock option expense (b) 2.9 1.8 0.03
Income, as adjusted (c) $101.3 $63.8 $1.04
(dollars in millions, except EPS)
Nine-month period ended October 1, 2005
Income
Before Net Diluted
Taxes Income EPS
Income, as reported (GAAP) $49.4 $29.9 $0.49
Refinancing:
Tender premium (d) 14.0 8.5 0.14
Debt issuance costs (e) 5.6 3.4 0.06
Unamortized discount (f) 0.5 0.3 0.00
20.1 12.2 0.20
Acquisition charges:
Inventory step-up (g) 10.4 6.3 0.10
Intangible amortization (a) 1.0 0.6 0.01
11.4 6.9 0.11
Facility closings:
Plant closure costs (h) 7.6 4.6 0.08
39.1 23.7 0.39
Income, as adjusted (c) $88.5 $53.6 $0.88
(a) Amortization of OshKosh intangible assets, primarily licensing
agreements.
(b) Stock-based compensation charges related to the adoption of SFAS 123R.
(c) In addition to the results provided in this earnings release in
accordance with GAAP, the Company has provided adjusted, non-GAAP
financial measurements that present income before taxes, net income,
and net income on a diluted share basis excluding the adjustments
discussed above. We believe these adjustments provide a more
meaningful comparison of the Company's results. These adjusted, non-
GAAP financial measurements included in this earnings release should
not be considered as an alternative to net income or as any other
measurement of performance derived in accordance with GAAP. The
adjusted, non-GAAP financial information is presented for
informational purposes only and is not necessarily indicative of the
Company's future condition or results of operations.
(d) Tender premium to repurchase the Notes.
(e) Non-cash charge to write off debt issuance costs associated with the
Refinancing.
(f) Non-cash charge related to the write-off of the unamortized discount
on the Notes.
(g) Fair value step-up of inventory acquired from OshKosh included in cost
of goods sold.
(h) Costs associated with the closure of two sewing facilities in Mexico,
including accelerated depreciation charges of $1.6 million, pre-tax,
included in cost of goods sold.
Net cash used in operations was $5.2 million in the first nine months of fiscal 2006 compared to net cash provided by operations of $34.2 million in the first nine months of fiscal 2005. The change in cash flow was driven by increases in accounts receivable resulting from the timing of shipments and reductions in accounts payable and other current liabilities. In the first nine months of fiscal 2006, the Company made payments of $37.1 million on its term loan, including prepayments of $34.0 million. Since the Acquisition, the Company has reduced its long-term debt by $107.1 million, or 21.4%. Business Outlook
Our business outlook is based on our current expectations and includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes the comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.
(dollars in millions, except for share data)
Fourth Quarter 2006 Fiscal Year 2006
Consolidated Net Sales $ 374 +7% (a) $1,340 +20% (c)
Consolidated Adjusted
Diluted EPS $0.46 +35% (b) $1.50 +23% (d)
(a) Comparison to the fourth quarter of fiscal 2005.
(b) Estimated increase in the fourth quarter of fiscal 2006 excludes $0.01
per diluted share of intangible amortization related to the
Acquisition and $0.01 per diluted share of stock option expense
related to the adoption of SFAS 123R, compared to the adjusted fourth
quarter fiscal 2005 results of $0.34 per diluted share, which exclude
inventory step-up charges and intangible amortization related to the
Acquisition of $0.05 per diluted share, and Mexico plant closure costs
of $0.01 per diluted share.
(c) Comparison to fiscal 2005, which includes OshKosh from July 14, 2005
through December 31, 2005.
(d) Estimated increase in fiscal 2006 excludes $0.05 per diluted share of
intangible amortization related to the Acquisition and $0.04 per
diluted share of stock option expense related to the adoption of SFAS
123R, compared to the adjusted fiscal 2005 results of $1.22 per
diluted share, which exclude debt extinguishment charges of $0.20 per
diluted share, inventory step-up charges and intangible amortization
related to the Acquisition of $0.16 per diluted share, and Mexico
plant closure costs of $0.08 per diluted share as previously described
in our February 22, 2006 earnings release.
The Company will broadcast its quarterly conference call on October 25, 2006 at 8:30 a.m. Eastern Time. To participate in the call, please dial 1-913-981-5520. To listen to the live broadcast over the internet, please log on to www.carters.com, go to "About Carter's," click on "Investor Relations," and then click on the link "Third Quarter Conference Call." A replay of the call will be available shortly after the broadcast through November 3, 2006, at 1-719-457-0820, passcode 3624897. This replay will be archived on the Company's website at the same location as the live webcast.
For more information on Carter's, Inc. please visit www.carters.com.
Cautionary Language
Statements contained herein that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated results for fiscal 2006 or any other future period, are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Factors that could cause actual results to materially differ include a decrease in sales to, or the loss of one or more of the Company's key customers, the acceptance of our products in the marketplace, deflationary pressures on our prices, disruptions in foreign supply sources, negative publicity, increased competition in the baby and young children's apparel market, our substantial leverage, which increases our exposure to interest rate risk and could require us to dedicate a substantial portion of our cash flow to repay principal, changes in consumer preference and fashion trends, a decrease in the overall level of consumer spending, the impact of governmental regulations and environmental risks applicable to the Company's business, our ability to identify new locations and negotiate appropriate lease terms for our retail stores, our ability to attract and retain key individuals within the organization, failure to realize the savings and other benefits that we expect from Acquisition-related cost reduction initiatives, and seasonal fluctuations in the children's apparel business. These risks are described in our most recently filed Annual Report on Form 10-K under the heading "Risk Factors" and "Statement Regarding Forward-Looking Statements." The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
CARTER'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except for share data)
(unaudited)
Three-month Nine-month
periods ended periods ended
September 30, October 1, September 30, October 1,
2006 2005 2006 2005
Net sales:
Wholesale $169,402 $163,401 $404,950 $348,401
Retail 156,232 151,164 389,710 286,425
Mass Channel 66,343 57,593 171,341 136,039
Total net sales 391,977 372,158 966,001 770,865
Cost of goods sold 244,757 243,497 613,382 500,374
Gross profit 147,220 128,661 352,619 270,491
Selling, general, and
administrative expenses 93,496 89,303 258,944 192,542
Plant closure costs -- 1,509 91 6,078
Royalty income (7,782) (7,208) (21,610) (13,544)
Operating income 61,506 45,057 115,194 85,415
Loss on extinguishment
of debt -- 20,137 -- 20,137
Interest expense, net 6,554 7,444 20,367 15,902
Income before income taxes 54,952 17,476 94,827 49,376
Provision for income taxes 19,975 6,898 35,046 19,499
Net income $34,977 $10,578 $59,781 $29,877
Basic net income per
common share $0.60 $0.18 $1.03 $0.52
Diluted net income per
common share $0.57 $0.17 $0.98 $0.49
Basic weighted average
number of shares
outstanding 57,949,783 57,439,850 57,845,521 57,177,740
Diluted weighted
average number of
shares outstanding 61,094,141 60,932,056 61,173,247 60,672,620
CARTER'S, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
(unaudited)
September 30, December 31, October 1,
2006 2005 2005
ASSETS
Current assets:
Cash and cash equivalents $29,956 $84,276 $20,743
Investments -- -- 8,430
Accounts receivable, net 150,835 96,144 132,708
Inventories, net 199,849 188,454 209,895
Prepaid expenses and other
current assets 9,696 6,262 8,426
Deferred income taxes 19,739 23,909 24,361
Total current assets 410,075 399,045 404,563
Property, plant, and equipment, net 79,863 79,458 74,952
Tradenames 322,233 322,233 322,233
Cost in excess of fair value of
net assets acquired 279,756 284,172 287,431
Deferred debt issuance costs, net 6,797 8,257 9,166
Licensing agreements, net 13,959 17,150 18,214
Leasehold interests, net 1,268 1,619 1,735
Other assets 5,144 4,793 4,083
Total assets $1,119,095 $1,116,727 $1,122,377
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt $2,984 $3,241 $4,699
Accounts payable 44,395 63,735 46,810
Other current liabilities 79,151 89,627 83,622
Total current liabilities 126,530 156,603 135,131
Long-term debt 389,915 426,791 464,051
Deferred income taxes 126,145 124,439 127,004
Other long-term liabilities 22,111 22,250 29,697
Total liabilities 664,701 730,083 755,883
Commitments and contingencies
Stockholders' equity:
Preferred stock; par value $.01
per share; 100,000 shares
authorized; none issued or
outstanding at September 30,
2006, December 31, 2005, and
October 1, 2005 -- -- --
Common stock, voting; par value
$.01 per share; 150,000,000
shares authorized; 58,179,118
shares issued and outstanding
at September 30, 2006; 40,000,000
shares authorized; 28,909,729
and 28,828,969 shares issued
and outstanding at December 31,
2005 and October 1, 2005,
respectively 582 289 288
Additional paid-in capital 265,345 260,414 257,816
Deferred compensation -- (2,749) (2,420)
Accumulated other comprehensive
income 1,350 1,354 799
Retained earnings 187,117 127,336 110,011
Total stockholders' equity 454,394 386,644 366,494
Total liabilities and
stockholders' equity $1,119,095 $1,116,727 $1,122,377
SOURCE Carter's, Inc.
CONTACT:
Eric Martin,
Vice President, Investor Relations of Carter's,
Inc.,
+1-404-745-2889
Web site: http://www.carters.com
(CRI)